Absolute & Comparative Advantage

Absolute & Comparative Advantage - Chapter 2:...

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1 Chapter 2: Comparative Advantage: The Basis for Exchange Scarcity, Choice, and Opportunity Cost Production Possibility Curve Specialization Case 2.4: A few facts: Both Abe and Sarah work 12 hours a day. Each splits his/her time between work at home and in the market.
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2 Case 2.4: A few facts 8 2 Abe 10 5 Sarah Market Goods (per hour) Home Goods (per hour) Case 2.4: Analysis A person (or country, or firm) has an Absolute Advantage if they can produce more per unit of input (e.g. time).
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3 Case 2.4: Analysis Each person working alone Sarah’s PPC: Maximum she can produce at home: 12 hours * 5= 60 Maximum she can produce in the market: 12 hours * 10= 120 Case 2.4: Analysis Each person working alone Abe’s PPF: Maximum he can produce at home: 12 hours * 2= 24 Maximum he can produce in the market: 12 hours * 8= 96
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4 Case 2.4: Analysis Married Life Maximum production of home goods: 12 *5 + 12 *2 = 84 Maximum production of market goods: 12 *10 + 12 *8 = 216
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Absolute & Comparative Advantage - Chapter 2:...

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